China’s tech scene has long been dominated by giants like Baidu, Alibaba and Tencent, but the status quo is set to change with the rapid growth of Meituan.

Groupon vs Meituan / Image Credit: Digital East Asia

The Beijing-based company started off as the Chinese version of Groupon, which banks on a group-buying business model.

Founded by serial entrepreneur Wang Xing in 2010, Meituan allows users to enjoy discounted deals for food and entertainment outlets.

After edging out rivals such as the Baidu-backed Nuomi to become the largest of its kind in China, Meituan has expanded aggressively into more local services.

One of Meituan’s significant move was to venture into food delivery, which is a huge and highly viable market in China in the last few years.

The Chinese Equivalents Of Groupon And Yelp Merges

Image Credit: VCG

Then in 2015, it merged with Dianping – the Chinese equivalent of Yelp – to become a one-stop app that offers a plethora of services: from getting a taxi, purchasing flight tickets, ordering food delivery, to booking movies.

This new entity was valued at US$15 billion at that time.

Founded by Tao Zhang in 2003, Dianping had started off as a restaurant review service but it has since diversified its portfolio to include all sorts of services from table-booking to ticket purchasing.

Before they merged, Meituan has been popular in second and third-tier cities, while Shanghai-based Dianping was more prevalent in first-tier urban centres.

The merger also brought two of China’s top investors together. While Meituan was backed by Tencent, its rival Alibaba had invested in Dianping.

So with Tencent and Alibaba being market competitors, the merger inevitably created tensions between the two parties, which ultimately led to Alibaba selling most of its Meituan stocks in early 2016.

Following this, Alibaba had went on to back some of Meituan’s key competitors including food delivery app Ele.me and local commerce platform Koubei.

But Meituan pushed ahead and leveraged on Dianping’s huge user base, as well as built a large logistics network across China.

Meituan’s food delivery arm / Image Credit: Medium

Meituan then managed to elbow aside Alibaba-owned Ele.me to grab 46 per cent of the country’s US$31 billion food delivery market last year, according to consultancy Trustdata.

When a new opportunity appears, a pile of people rushes in. There may be four preliminary winners after a period of battle. It’s usually the BAT (Baidu, Alibaba, Tencent) plus the winner among the startups — for instance, this is the situation that [Chinese news aggregator] Jinri Toutiao is facing today.

But this is not a stable structure so four will turn into three, and three into two, just like what happened when Baidu Takeaway exited [the food delivery competition].

With over 300 million users and 4.4 million active merchants on its platform, Meituan has gained widespread popularity in China and it’s clear to see that it has a strong hold in several online markets.

It has surpassed Chinese travel site Ctrip in terms of total hotel rooms booked via the app, thanks to a strategy that focuses on promoting discounted rooms to consumers in lower-tier cities.

The company is ranked second in the hotel booking industry in China, holding a 36 per cent market share; which led Priceline to purchase a $450 million stake in the app last year.

But despite the app’s success, you’d be surprised to know that the company has yet to make a profit.

Gunning To Raise US$4B With HK IPO

Image Credit; EJ Insight

As part of its fundraising efforts, Meituan-Dianping has recently filed for a Hong Kong IPO last month, an offering that aims to raise more than US$4 billion.

According to Meituan, these funds will be used towards upgrading its technology, developing new products and services, and making acquisitions and investments.

However, its IPO filing revealed a US$2.8 billion loss for 2017, steeper than in the previous two years.

After adjusting for share-based compensation and other items, the loss for the year was US$439 million.

Although this figure is half of 2016’s net loss of $830 million, the loss still makes for a very significant amount of money.

Bank of America Merrill Lynch, Goldman Sachs Group Inc., and Morgan Stanley are reported to be sponsoring the app’s IPO.

It is aiming for a US$60 billion valuation with the IPO – double its valuation now – but it may have difficulty reaching that target as the company is still losing money and relies on cash-burning business model to boost growth.

Meituan Does Not Aim On Being #1 In China

Meituan founder, Wang Xing / Image Credit: Dictio.id

Meituan founder Xing said that he does not strive for his company to be No. 1, nor does he believe that there should be a simple dominant company in one area.

Enterprises are reluctant to have only one supplier and there are always consumers that prefer different brands: Coca-Cola or Pepsi, Nike or Adidas.

What Meituan wants to do is expand horizontally, and we are not afraid to step into other areas.

Expansion is just another way to serve its users, he added.

Xing also believes that Meituan has the potential to become the next Alibaba or Tencent, but knows that this will take time.

By building such an ecosystem of online services, the company is marching into WeChat’s territory.

The Tencent-owned super app, which now has over a billion users, remains China’s most top messaging app.

WeChat has evolved far beyond instant messaging and it has added functions such as mobile payment, online shopping, and ride-sharing as well, making it a contender in the super app arena.

Ironically, Meituan actually counts Tencent as a shareholder.

Now the rapidly-growing Meituan, together with ride-sharing firm Didi Chuxing and media startup Bytedance, which runs the popular Toutiao news app, is collectively known as China’s TMD companies – an acronym for a generation of up-and-coming challenging the country’s tech trinity of Baidu, Alibaba and Tencent.